PBOC To Allow Higher Yuan Volatility In 2014

The People’s Bank of China plans to expand the yuan’s trading band this year in an “orderly” manner as it moves toward a more convertible currency.

The PBOC will also continue to broaden cross-border usage of the yuan, it said in a statement on its website yesterday after a Feb. 17-18 conference. PBOC Governor Zhou Xiaochuan had said in November that the central bank would broaden the band, without giving a timeframe. The spot rate in Shanghai is currently allowed to fluctuate a maximum 1 percent on either side of a daily fixing set by the central bank. The trading band was last widened in April 2012 from 0.5 percent, and before that from 0.3 percent in May 2007.

“Yuan band widening is imperative as the government is opening up its capital markets,” said Banny Lam, Hong Kong-based co-head of research at Agricultural Bank of China International Securities Ltd., a unit of the nation’s third-largest lender. “The band could be broadened as soon as this quarter to as much as 2 percent.”

Bloomberg

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